Short-term JGB yields jump to multi-decade highs on BOJ rate-hike bets

TOKYO: Japanese government bonds fell on Friday, sending shorter-term yields to historic highs, as expectations firmed around a Bank of Japan interest rate hike next month.

Here are a few details:

The two-year yield, the one most sensitive to BOJ policy rates, added 0.5 basis point (bp) to 1.650%, the highest since May 1995. Yields move inversely to bond prices.

The five-year yield advanced 1.5 bps to a record high of 2.135%, extending its streak of gains to five sessions.

The benchmark 10-year JGB yield climbed 0.5 bp to 2.875%.

Three sources familiar with the BOJ’s thinking said the central bank is set to raise interest rates as soon as September and is considering accelerating the pace of hikes thereafter.

“Speculation about an early interest rate hike by the Bank of Japan continues to weigh on the market,” Takayuki Miyajima, senior economist at Sony Financial Group, said in a note.

Japan may signal the chance of faster-than-expected interest rate increases to stem the yen’s decline, Tokyo’s former top currency diplomat Mitsuhiro Furusawa told Reuters.

Data on Thursday showed Japan’s July producer price index rose 7.2% year-on-year, slightly below forecasts but still elevated enough to reinforce expectations for a rate hike.

JGBs rose earlier in the session, tracking gains in US Treasuries after tame producer price data cooled expectations for a Federal Reserve rate hike next month.‑Reuters